In mid-1983, Michael Foot led the British Labour Party to a disastrous general election loss. The party, already in opposition, lost 60 seats in a 9.3% swing against it. Labour barely scraped into second place ahead of the SDP-Liberal alliance, with just 27.6% of the vote. Foot’s economically interventionist manifesto and socialist rhetoric were blamed for the scale of the loss.

The election brought a new generation of MPs to Parliament, including Tony Blair, who resolved to reform Labour to make it electable again. Squarely in the sights of this new crop of reformers was the infamous Clause IV of the party’s constitution, the clause that committed Labour to the “common ownership of the means of production, distribution and exchange”. They finally re-wrote the objective in 1995 after a bitter tussle.

By that time, Australian Labor had already made its choice about the need for a greater reliance on markets to achieve social democratic ends. The federal parliamentary party, under the leadership first of Bill Hayden and then Bob Hawke, tried to distance itself from the (real and/or perceived) chaos of the Whitlam government, particularly its latter period. The Hawke Government was motivated by a desire to prove to the public that Labor could be economically responsible.

For Blair and his antipodean antecedents, the internal fight over the direction of Labo(u)r was one of the defining events of their political lives. The next generation of politicians, like Mark Latham, came of age in a period apparently defined by this binary choice: you can pine for the old socialist ways of nationalised industry and high tariff walls, or you can have a new, modern, market economy and success at the ballot box. Take your pick. One or the other. All or nothing. That choice defined the group of politicians I think of as the Clause IV generation.

Latham’s new Quarterly Essay, Not Dead Yet, is shot through with the binary distinctions of the Clause IV generation. You’re for the new ways, the Keating legacy, openness and markets, or you’re a smokestack troglodyte. You’re a moderate reformer, or you’re an extremist. Voters are ‘aspirational’ (and therefore to be courted) or they’re inner-city elites (and to be ignored). The problem for Latham and the Clause IV generation is that these battles and these dichotomies are tired, decreasingly relevant, and don’t really square with reality.

Latham thinks that the ALP has drifted away from “the Keating model” and that this drift accounts for its poor political standing. According to Latham, “given a choice between traditional left thinking – reflected in the paternalism of welfare-state programs – and the aspirational demand for individual entitlements and flexibility, Labor still sides with the former”.

How does he reconcile this argument with Labor’s creation of the (as yet embryonic) National Disability Insurance Scheme? The NDIS is based on a system of individual entitlements – under the scheme, people with disability will make choices about which services they’d like to use, rather than being dictated to by a bureaucracy. How does that represent the “paternalism of welfare-state programs” rather than “individual entitlements and flexibility”? Similarly, what of MySchool and NAPLAN, initiatives Latham praises, that are designed to arm parents with sufficient information to make informed choices about their children’s schooling? These policies are hardly evidence that modern Labor is in thrall to the dead hand of pre-1983 bureaucratic centralisation. Like it or not, the ALP has not shied away from pushing further in the direction of individual entitlements and quasi-vouchers in the delivery of public services.

In his desire to squish the past thirty years of Labor history into binary categories, I believe Latham oversimplifies and misrepresents both the Hawke-Keating period and the recent period. It seems to be Latham’s view that the modern ALP has pandered to old-fashioned welfarism at the expense of middle-class ‘aspirationals’, while the Hawke and Keating governments had their priorities right. How does this fit with the facts? Between 1983 and 1996, the real value of the unemployment benefit rose by 27.4%, a $52 a week increase in today’s money. Under the Rudd and Gillard governments, there has been no real increase. Modern Labor is hardly emblematic of “traditional left thinking,” as Latham puts it, and nor was the “Keating model” the rigid, purist neoliberal regime of Latham’s imagination.

Latham’s narrative also ignores the records of the respective governments on taxes. Keating left office with a top marginal tax rate of 47% that kicked in at 1.4 times average full-time earnings. In 2012-13, the top rate (45%) doesn’t apply until around 2.5 times average full-time earnings. At the other end of the scale, the effective tax-free threshold has risen from 17.4% of average earnings ($6150) at the end of Keating’s reign to 28.2% of the average this year ($20542). This boost at the bottom end should surely square with Latham’s call for public policy that supports those who work, those who aspire to improve their lot through labour, yet it goes unremarked upon. Latham’s story rests on his view of the ‘Keating model’ as a paradise lost, a policy panacea spurned by a crop of politicians determined to turn back the clock. Policies that inconveniently don’t fit Latham’s frame, whether they be the refurbished safety net of the Keating era or the tax cuts of the past five years, are ignored.

Another dichotomy that rings false in Latham’s essay is that between the ‘aspirationals’ and everyone else. The aspirationals, to revive a phrase I thought we’d left behind in 2004 along with ‘dial-up’ and ‘schools hit list’, are those mainstream suburban families who have a good material standard of living and are concerned, above all else, with keeping it that way. I have always struggled with this term. Who doesn’t aspire to better for themselves or their children?

Latham’s vision of a party that meets “the economic aspirations of the new middle class while also addressing underclass poverty” calls to mind Mike Konzcal’s memorable description of this sort of welfare-state residualism as “pity-charity liberal capitalism”. That’s the view that we should have essentially a laissez-faire minimalist state in nearly all respects, but with a welfare safety net on the side that protects people against the ravages of absolute poverty, ‘real’ poverty. Even then, though, Latham’s concession to egalitarianism is minimal at best. He takes the view that more money won’t help poor people, saying quite clearly that the problem “is not the adequacy of income support… [the] system is generous enough for recipients to cover basic living costs”. He doesn’t produce evidence to support this proposition, beyond noting that real income support allowances have risen in the past three decades (though he elides the fact that they’ve barely risen in the past two).

Just as he turns his nose up at the idea that low-income people might benefit from higher incomes, Latham also rejects the paternalist interventions of Noel Pearson; instead he casts his policy of dispersing the poor from their home neighbourhoods as the reasonable third way between “the welfare statism of the 1970s” and Pearson’s program. Latham’s prescriptions spring from the Clause IV generation orthodoxy: the most important thing we can do for poor people is to get out of their way, rather than getting sucked into the misguided belief that we can help them. His agenda is more or less indistinguishable from that of Iain Duncan Smith, Nick Clegg, or Joe Hockey.

Of course, as Don Arthur put it, “the only serious problem with Latham’s plan to end poverty is that it won’t do much to end poverty.” This identifies another key weakness of Latham’s essay: the conflation of good politics with good policy. Latham’s prescription for “the underclass” is rooted in the electoral advantage he sees for Labor in playing up to the electorate’s alleged anti-welfare prejudices. “If taxpayers see evidence of welfare recipients taking advantage of the system, they want governments to take a tougher approach,” observes Latham, truthfully enough. But what if taxpayers don’t really see much evidence of that sort, and they want a tougher approach anyway? Latham’s argument seems to be that policymakers should succumb to the popular perception regardless.

In his pining for the ‘Keating model’, I think Latham misses some key ways in which the world has changed since the 1990s. First of all, Keynesianism (by which I mean counter-cyclical fiscal policy) has been revived in theory and in practice. Our own Treasury was stuffed to the brim with senior officials who had lived through the 1990s recession and regretted the relative inaction of the time. This begat Ken Henry’s famous advice to Kevin Rudd to “go hard, go early, go households” in 2008. This advice was borne of the errors of the 1990s.

The second shift I believe Latham misses is the widespread repudiation of laissez-faire financial regulation in the wake of the financial crisis. Ian Harper, a conservative economist who was a member of the Howard Government’s Wallis Inquiry into the financial system, recently conceded that the Inquiry, upon which much of our current regulatory architecture is founded, placed too much faith in a strong form of the efficient markets hypothesis. The willingness of Harper and others (like Adair Turner in the UK) to revise their view of the role of financial regulation in the wake of the criss stands at odds with Latham’s view that the policy agenda of 1995 can be effortlessly ported into 2012.

Latham also fails to mention one of the key developments of the post-Keating period: the increase in house prices relative to median incomes. It’s possible that Latham’s aspirationals were all born before the mid-70s or so, and were able to get in before the boom.

The essay isn’t all bad. I applaud Latham’s goal, announced in the first chapter, of producing a work that is more focused on policy proposals than on blood-letting and carping from the sidelines. I do, strange as it might seem, agree with him about many aspects of policy. Labor has always been a pragmatic party, a party that seeks to govern. It’s not a dogmatic party, driven by purist ideology. Latham has that right. I think that Labor was right to float the dollar and to pursue some of the more market-oriented reforms it has implemented over the past three decades.But I think that Latham is wrong to miss the other half of the picture, Keating’s view that if people “fall off the pace you will reach back and pull them up.” Some members of the Clause IV generation are too keen to leave behind central elements of the centre-left agenda.

This post is a temporary dip into the waters of more ‘political’ discussion. I’ll be back to my usual chart-blogging soon.

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This is a good review, thanks Matt. I found the best bits of Latham’s essay to be his brutal critique of the Liberal party and extremist right elements in the media/think-tank complex. Reminds me why people liked him when he was leader — he could smash the enemy. On policy though, he was fundamentally unsound and very neo-liberal.

cheers. Yes, I thought there was some good stuff in the essay. I even agree with him about some policy issues! I just think the overall thrust of his policy prescriptions rests too heavily on the false dichotomies I detail in the post

I liked your piece. I find Latham a bit hit-and-miss (if you and your taxi-driving readers will excuse the expression). Today, though, he’s a soft Tory – almost Fraser-esque in his viewpoint.

If I had a nit to pick – which of course I do – it’d be this:

Latham also fails mention one of the key developments of the post-Keating period: the increase in house prices relative to median incomes. It’s possible that Latham’s aspirationals were all born before the mid-70s or so, and were able to get in before the boom.

Housing affordability is controlled by household income and the price of money as well as house prices. Latham’s ‘aspirationals’ (an obviously stupid term in itself, used to glide over my view that he’s really talking about upper-middle-income folks) may also have been losing their houses in the late 80s/early 90s. IIRC, the ratios of outright ownership vs mortgage holders vs renters hasn’t changed much over time. For potential buyers, this may be behind sensitivity to prices rising while not paying enough attention to interest rates falling.

In short, I’m not yet certain that this rise in house prices is necessarily hugely relevant to his thesis (which I generally don’t agree with anyway).

There has been a bit of a shift in the share of households in each category. In the 1996 census, 27.5% of households rented their dwellings; 41.6% owned them outright; and 26.2% had a mortgage.(4.7% ‘other’ or not stated). In 2011, these proportions had changed: 29.6% were renters, 32.1% owned outright; 34.9% had a mortgage.

In any case, my point about house prices was a relatively minor facet of my critique. The point was just to note that the economy of 1996 is not the economy of 2013, and that the policy prescriptions from the latter period can’t necessarily be ported holus-bolus into the present. My specific point with regard to house prices is that the people that Latham regards as “the aspirationals” can probably be distinguished from their socio-economic equivalents who are ten years or so younger, simply because the younger group has come of age after the run-up in prices in the late-90s and 2000s.

I think the most startling example is his one-line declaration (in response to Rudd’s Monthly essay of 2009) that the subsequent four years have demonstrated the superiority of free markets beyond doubt. Makes me wonder if he and I are on the same planet.

Hi John, thanks for reading my post.
Yes, I was quite shocked by that line. I suppose he might be someone who views the crisis as one of government, a silly position that would nevertheless fit with the general tenor of his arguments.

Sorry, this is a very long comment – I started typing it and it just kept appearing from my fingers!

First, while it’s not the subject of your post, Latham’s description of the ALP in the essay is pretty much right on the mark, based on my experience. A fundamental challenge facing the ALP is how to adapt to the rise of the fraction of the workforce who earn a living without the intermediating influence of trade unions and who feel that they don’t need trade unions in their working life. To my knowledge, this is barely discussed inside the ALP.

Latham’s suggestions for reforming candidate preselections are interesting – and would probably result in the selection of a better suite of candidates. I agree with him that the trade unions will not allow the ALP rules to be changed to sever the institutional link between them and the ALP.

Second, I agree with you that Latham adopts a binary distinction between ‘Clause IV’ and conservative politicians and that the reality of what Labor did in ’83-’96 and since 2007 is much more nuanced. Latham appears to be is using that binary distinction to make clear a more general economic philosophy he perceives the party has taken at various times. However, I think it is more useful to think of the policies adopted over any period as being on a statistical distribution along various dimensions – e.g. the distribution of policies introduced during one period might be more towards the liberal end of the spectrum than another period.

Where the policies adopted at a time sit along a dimension will be influenced by all manner of things including the general political/economic environment, theories that are in vogue at the time, Treasury’s stance and its relationship with politicians, and the personas of the politicians charged with introducing the policies.

I agree that the Labor government since 2007 has not been a ‘traditional leftist welfareist’ government as perhaps might be suggested by Latham’s essay – I recall that, at its start, it strongly promoted the idea that it would follow in the Hawke/Keating approach to economic management. And a few recent examples are inconsistent with a welfareist approach – increasing competition in vocational education and training markets, the recent un-grandfathering of sole parents who were not on Newstart, introducing MySchool, and introducing performance pay for teachers (I don’t know what happened with that policy). These are just a few examples.

They are particularly emphasising distributional-type policies, such as: ‘Aussie Jobs’, ‘protecting penalty rates and holiday pay’, and increased pay for child care workers. Each of these may or may not be worthy things, but there doesn’t appear to be nearly the same public focus on enhancing economic outcomes through things such as: attempting to ensure consumers pay only the efficient cost of supply of goods/services, addressing barriers to competition in various markets, reducing unneeded transaction costs (e.g. in inter-state recognition of licensing qualifications). While COAG is doing work in some of these areas, it isn’t particularly highlighted by the federal government.

In general, I think some good work is being done in the background – work that Latham would applaud – but that the federal government is emphasising a suite of policies designed to appeal to voters it would have thought to be rock-solid Labor voters 20 years ago. The recent approach to 457 visas is a good example.

Matt, I pretty much share your views in your last para, especially the following:

‘Labor has always been a pragmatic party, a party that seeks to govern. It’s not a dogmatic party, driven by purist ideology. Latham has that right. I think that Labor was right to float the dollar and to pursue some of the more market-oriented reforms it has implemented over the past three decades. But I think that Latham is wrong to miss the other half of the picture, Keating’s view that if people “fall off the pace you will reach back and pull them up.” Some members of the Clause IV generation are too keen to leave behind central elements of the centre-left agenda.’

Your “fundamental challenge” is really important and the point you make about it is an issue for the whole of the labour and “green” movements. It seems to me though that this ‘rising fraction’ do depend to some degree or another on what unions are able to achieve in bargaining and other campaigns. It is union bargaining that establishes the benchmarks – whether improving stagnating, or declining – upon which the rest of the working class can define its needs and objectives, whether pursued individually or in other ways.

Hi Don, I agree it is union bargaining that establishes a base benchmark in some sectors, but it doesn’t in others. E.g. I know that some public servants in the general ‘policy’ space earn a fair bit more than is available for similar work in the private sector. Also, in some sectors the negotiated is fairly low and people will tend to float above it based on market conditions. But it is a key issue that is not being addressed by the ALP.

Thanks again Matt for a thoughtful article. Unfortunately it forces me to find time to read the Latham essay! What I am looking for is some insight from Latham, and his Australian commentators, and Keynesian political economy, about how neoliberalism evolved organically out of Keynesian style welfare statism, and in turn how what I call “neolaboralism” evolved out of neoliberalism. There is a common thread across these different applications of government and ideology, isn’t there? Assuming you agree, How would you describe that thread? And what are its implications?

Thanks for your comment, and sorry it has taken me a little while to respond.

I haven’t & won’t comment on the internal ALP stuff, as I don’t know enough about the way the party functions and my job precludes such statements anyway.

I’m glad you see some merit in my characterisation of Latham’s views as resting on a false dichotom.

You say that “at its start, [the current govt] strongly promoted the idea that it would follow in the Hawke/Keating approach to economic management”. I think they have kept that promise. They adopted a cap on the tax/GDP ratio at around the same level that H-K did in the mid-80s. Not only have they not breached that cap, but revenue has been persistently below it. They adopted a policy to balance the budget over the cycle, a policy that the H-K and Howard Governments also adopted. They have reaffirmed the independence of the central bank and its primary focus on inflation. They cut taxes for high-income earners and cut them on low-income earners.

In the welfare area, not only have they not been the “traditional leftist welfareist” government of Latham’s imagination, but they’ve also been considerably less “welfareist” in some ways than the Hawke-Keating governments were.

You say that the government is “particularly emphasising distributional-type policies”. I am unclear here whether your complaint is the substance of the policies or the emphasis of them in public communications. Remember that the Keating government protected penalty rates, too; the 1993 IR reform was far more centralised and strict than the current legislation, regardless of claims to the contrary by some.

You say that there isn’t the same focus on competition policy and the like, although you correctly note that COAG has done some work in this area. I think part of the ‘problem’ here is that the low-hanging fruit has been picked, in most cases by the Keating Government. You can only privatise the Commonwealth Bank and QANTAS once. You can only deregulate big markets once. The big reforms have been done.

Anyway, thanks for commenting. I suspect we have a fair bit in common in our views, but I don’t resile from my belief that “distributional type policies” should form part of the policy bedrock of a Labor bedrock (along with growth-oriented policies, of course).

It’s not just the one-off low-hanging fruit that suggests the government’s approach – their ongoing car industry support, introduction of an NBN monopoly, and continued meddling in the design of the renewable energy target (splitting it into two and redefining the nature of the small energy target a few years ago) lend weight to my point about the substance of their policies and also the marketing of them. Like Latham, I think their PetrolWatch and GroceryWatch schemes were just silly, and played to people’s perceptions that government (some big powerful entity) can influence/control their cost of living. As Rachel Nolan pointed this, government essentially exited this (having direct control) over the last 20 years.

This is not a complete analysis of the fed govt’s approach, and I should say some of their policies are quite ok – such as some of the bank package ones, and distributional ones are always key in any society. There is much room for improvement however.